Home Depot (HD) Positively Surprises

The Home Depot Inc. (HD), surprised with its fourth-quarter 2010 adjusted earnings of 36 cents a share. The adjusted earnings not only surpassed the prior-year quarters’ earnings of 24 cents (an increment of 50%), but also outpaced the Zacks Consensus Estimate of 30 cents.

For fiscal 2010, adjusted earnings grew by 21.1% to $2.01 a share from $1.66 in the prior fiscal year.

Financial Details

During the reported quarter, net sales inched up 3.8% year over year to $15,126.0 million compared with $14,569.0 million in the prior-year quarter, surpassing the Zacks Consensus Estimate of $14,800.0 million. The growth in net sales was primarily driven by an increase of 3.9% in total company comparable store sales and a rise of 4.8% in comparable store sales in the U.S.

Operating margin for the reported quarter has witnessed an improvement of 186 basis points (bps) to 6.86% compared with 5% in the prior-year quarter. Improvement in operating margin was primarily driven by effective cost management.

For full fiscal 2010, net sales increased 2.75% to $67,997.0 million compared with $66,176.0 million in the prior year, exceeding the Zacks Consensus Estimate of $67,681.0 million. The increase was primarily attributable to a surge of 2.9% in total company comparable store sales and 2.5% increase in comparable sales in the U.S. stores. Operating margin for the fiscal improved 133 bps to 8.59% compared with 7.26% in the prior fiscal.

Balance Sheet, Cash Flow and Dividend

Home Depot ended its fiscal 2010 with cash and cash equivalents of $545.0 million and a long-term debt capitalization ratio of 34.0%. During the reported year, the company generated $4,585.0 million of cash from operations and deployed $2,608.0 million toward share buyback, $1,029.0 million for debt repayment and $1,096.0 million as capital expenditures.

The board of directors of the company has increased its fourth quarter 2010 cash dividend by 6% to 25 cents a share. Since the last 96 quarters, the company has a record of paying quarterly cash dividends to its shareholders.

Fiscal 2011 Guidance and Zacks Consensus

Home Depot is expecting a 9.5% increase in adjusted earnings to $2.20 a share for fiscal 2011 from fiscal 2010 on the back of a 2.5 % increase in sales. The company plans to open 10 new stores in this fiscal and generate a cash flow of approximately $5.7 billion from the business. The current Zacks Consensus Estimate for fiscal 2011 is $2.24 per share, which lies above the guidance.

Home Depot, which competes with Lowe’s Companies Inc. (LOW) and Target Corporation (TGT), currently, has a Zacks #3 Rank, implying a short-term Hold rating on the stock. The company retains a long-term Neutral recommendation.

HOME DEPOT (HD): Free Stock Analysis Report

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